ITAT rectifies order following Supreme Court decision on delayed PF ESI contributions under section 36(1)(va)

ITAT Cuttack rectified its earlier order following SC decision in Checkmate Services case. The tribunal held that delayed employees' contributions to PF and ESI beyond prescribed due dates are not allowable under section 36(1)(va) of Income Tax Act. Section 43B provisions do not apply to employees' contributions under section 36(1)(va). The matter was restored to AO for re-adjudication with liberty to assessee to raise necessary arguments. Appeal was partly allowed for statistical purposes.

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Issues Involved
1. Rectification of the Tribunal's order under Section 254(2) of the Income Tax Act.
2. Allowability of employees' contributions to PF and ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act.
3. Application of the Supreme Court decision in Checkmate Services Pvt. Ltd. case.
4. Re-adjudication of the issue by the Assessing Officer.

Detailed Analysis

1. Rectification of the Tribunal's Order under Section 254(2) of the Income Tax Act:
The revenue filed a miscellaneous application seeking rectification of the Tribunal's order dated 20.09.2022 in ITA No. 07/CTK/2022. Section 254(2) allows the Appellate Tribunal to rectify any mistake apparent from the record within six months from the end of the month in which the order was passed. The Tribunal can rectify clerical, grammatical, or arithmetical mistakes without re-argument or reappraisal of facts. The Tribunal noted that the scope of rectification is limited to correcting apparent mistakes and does not extend to recalling the entire order for a fresh decision.

2. Allowability of Employees' Contributions to PF and ESI under Section 36(1)(va) read with Section 2(24)(x) of the Income Tax Act:
The issue of whether employees' contributions to PF and ESI are allowable if not paid before the due date under the respective Acts was addressed. The Tribunal initially allowed the contributions, but the revenue sought rectification based on the Supreme Court's decision in Checkmate Services Pvt. Ltd. The Tribunal acknowledged that the Supreme Court held that such contributions are disallowable if not paid within the due date prescribed under the relevant Acts.

3. Application of the Supreme Court Decision in Checkmate Services Pvt. Ltd. Case:
The Tribunal considered the Supreme Court's decision in Checkmate Services Pvt. Ltd., which was rendered on 12.10.2022. The Supreme Court held that employees' contributions to PF and ESI, if not paid within the due date under the respective Acts, cannot be allowed under Section 36(1)(va). The Tribunal noted that this interpretation applies from the date of incorporation of the said proviso, making the Tribunal's earlier order erroneous. Consequently, the Tribunal recalled its order dated 20.09.2022.

4. Re-adjudication of the Issue by the Assessing Officer:
The Tribunal restored the appeal to its original number and heard it on 13.01.2023. The Tribunal followed the Supreme Court's decision and held that delayed payments of employees' contributions to PF and ESI are not allowable under Section 36(1)(va). The Tribunal also referred to a similar case, Nirakar Security & Consultancy Services Pvt. Ltd. vs. ITO, where the issue was restored to the Assessing Officer for re-adjudication. The Tribunal granted liberty to the assessee to make all necessary submissions regarding the allowability of disallowed contributions under other relevant provisions, such as Section 37(1).

Conclusion
The miscellaneous application filed by the revenue was allowed, and the Tribunal's order dated 20.09.2022 was recalled. The appeal was restored to the file of the Assessing Officer for re-adjudication, granting the assessee the opportunity to present arguments regarding the allowability of disallowed contributions under other provisions. The appeal of the assessee was partly allowed for statistical purposes.

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